Bankruptcy
A legal process that relieves debtors of the responsibility of paying their debts or protects them while they try to repay
20/10 rule
Credit guideline stating that total borrowing should not exceed 20 percent of yearly take-home pay and monthly payments should not exceed 10 percent of monthly take-home pay
Involuntary bankruptcy
A type of bankruptcy in which creditors file a petition with the court, asking the court to declare the debtor bankrupt
Voluntary bankruptcy
A type of bankruptcy in which debtor files a petition with the court, asking to be declared bankrupt
Exempted property
Possessions that are bankrupt debtor is allowed to keep because they are considered necessary for survival
Chapter 7 bankruptcy
A liquidation form of bankruptcy for individuals that wipes out most debts in exchange for giving up most assets
Chapter 13 bankruptcy
A reorganization form of bankruptcy for individuals that allows the debtors to keep their property and use their income to pay a portion of their debts over three to five years
Reaffirmation
An agreement to repay discharged debts
Unsecured debt
A loan that is not backed by pledged assets
Chapter 11 bankruptcy
A reorganization form of bankruptcy for businesses that allows the businesses to continue operating under court supervision as they repay their restructured debts
Debtor
A person who owes money to others
Discharged debts
Debt erased by the court as a result of bankruptcy proceedings